Credit slide in European high-yield yet to materialise -S&P

LONDON, Feb 14 (IFR) - Credit quality in Europe's high-yield
bond market remains strong despite increasing risk appetite from
investors that has helped underpin a solid start to the year for
primary issuance, ratings agency S&P said in a report published
on Thursday.

Speculative-grade borrowers issued almost EUR5bn in bonds in
January, which is just shy of the record EUR5.6bn issued in
January 2010, and a five-fold increase on the EUR1bn sold in
January 2011 when the high-yield market was frozen to all but
the highest rated corporates, according to S&P.

S&P said companies have cushioned an 8% contraction in
operating cash over the past 12 months, by raising cash in the
debt capital markets. Operating cash contracted by 9% in 2008.

"Since September 2012, and particularly in January of this
year, we've observed a significant wave of debt issuance in
Europe being matched by investor appetite," S&P said.

"However, the evidence does not yet point to an overheated
market in Europe. Companies' use of the debt capital markets
remains conservative, with no substantial use of debt-funded,
shareholder friendly financial policies."

Orange Switzerland, owned by private equity group Apax, was
one of the minority of issuers last year that used bond proceeds
to pay itself a dividend. But even in that situation, leverage
was only increased to the same level at which the company was
first acquired.

S&P highlighted that speculative-grade issuers have
benefited from a halving in funding costs over the last twelve
months to less than 6% in January 2013 from almost 12%.

Europe credit quality in 2012 was helped by a dearth of
debt-funded mergers and acquisitions, although there is evidence
that this is picking up.

Most recently, Liberty Global's planned acquisition of
Virgin Media prompted S&P to place its BB rating on CreditWatch
negative in anticipation that leverage would increase.

The increase in leverage turned out to be reasonably modest
to just 3.4x Ebitda on a secured basis from 3.1x.

Buyout firms have also accelerated talks with lenders to
secure funding for a possible GBP10bn bid for Everything
Everywhere, according to banking sources, in which would be the
biggest private-equity backed acquisition in Europe since the
financial crisis.